Plus we also able to negotiate a frigerator (not part of standard package) as well as blinds for all windows. 

They get a higher return since they are covering housing cost, have the $250k per spouse primary residence deduction in gains, is a savings account, higher leverage position, lower interest rate possible, will pay more premium for location, etc.House might be overpriced for REITs but not for home owners.  

Right now, the best offers around me are for some 1.3-4 million, that only generated around 100k per year gross, so there would be a high chance of not cash flowing, and paying money, especially with a commercial loan (these buildings have more than 4 units).I was thinking that although the rental itself does not generate money, I would be able to deduct the mortgage interest, and depreciation from my personal w2 income and would be net positive.

(I'm guessing) my deduction would go further next year.

Before the income subject to UBIT is calculated you can depreciate and deduct expenses and losses on that portion of the income so generally it's not as bad as people think. 

I set my rent standards a little high and realized that rent is actually not that high.. we have a morgage on it and it looks like the house is selling for more than we originally paid 4 years ago.

Separate issue is only 13% of CA homeowners pay for earthquake insurance because it's so expensive and the deductible can be really high.What are your re-building costs in your area?

Which essentially puts some standards in place and a good guideline for handling all things in the company. ie. company mission, telephone standards, tenant screening process, etc. 

Quote from @John McCarthy: The standard answer is 60 Days, however, your lease should specifically state what your terms are that you both agreed upon when the tenant moved in.

all materials, all labor costs to others, Not you, utilities, interest payments, permits, licenses, auto/truck expenses, tools needed are all deductable.